Why you should get (and keep) a no-annual-fee credit card

Many consumers begin their journey of building credit by opening credit cards that do not charge annual fees. This is a cost-effective way to start building a credit history and earning rewards without having to pay for an expensive card year after year. However, as the credit card marketplace becomes increasingly competitive, there are several reasons why keeping a no-annual-fee card can be beneficial.

One of the main advantages of a no-annual-fee card is that it is usually easier to qualify for compared to premium cards with annual fees. First-time applicants or those new to credit often find it easier to be approved for a credit card with no annual fee. These cards are also a great way to get started with credit and dip your toes into major rewards programs without needing an excellent credit score or committing to a high annual fee.

Carrying a credit card can help you build your credit history and boost your overall credit score. Payment history is a major factor in determining your credit score, accounting for 35% of the overall score. By using a credit card and paying it off every month, you can demonstrate responsible credit usage and improve this metric over time. Additionally, credit utilization, which measures the amount of debt you have compared to your overall credit limit, is another important factor. Keeping a credit card with no annual fee open can help keep your credit limit high, thus reducing your debt-to-credit ratio.

The length of your credit history also plays a role in your credit score, accounting for 15% of the overall score. Keeping a card open and in good standing for a long time can improve this portion of your credit score. Furthermore, each bank or issuer has its own set of rules when it comes to approving new credit card applications. Closing a credit card account might have unintended consequences on future applications, as each bank has its own unpublished rules for evaluating creditworthiness.

Another advantage of keeping a credit card with no annual fee is that it doesn’t cost you anything. Unlike cards with annual fees, you don’t have to find ways to use benefits to offset the cost of the fee. Simply keeping the card active by using it for a small purchase every couple of months can maintain its status as an active account.

No-annual-fee cards also offer diversified earning categories. While premium cards often focus on specific bonus categories like travel or dining, cards with no annual fees often offer bonus points for everyday purchases like groceries or gas. By holding onto a credit card with no annual fee, you can earn rewards on a wider range of purchases and maximize your points-earning potential.

Lastly, closing a credit card might preclude you from future offers from the same bank or issuer. Each bank has its own set of rules regarding credit card applications, and closing a card could impact your eligibility for future offers. For example, some banks have restrictions on receiving a sign-up bonus for a specific card if you have received a new account bonus for that card in the past few years. By keeping the older card open, you can maintain eligibility for new offers.

In conclusion, many consumers start building their credit by opening credit cards that do not charge annual fees. These cards offer an inexpensive way to start building credit history and earning rewards. There are several reasons to keep a no-annual-fee card, including easier qualification, the ability to build credit history and boost your credit score, no cost to keep the card, diversified earning categories, and the potential impact on future card applications. Keeping a credit card with no annual fee can be a valuable tool in building, maintaining, and improving your credit in the long run.

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